The executive director of New Jersey Transit was quoted as saying,"We have a rule of thumb-for each 1 percent fare hike,we lose 0.2 percent of our ridership." From his statement we could assume that
A) fare increases will increase New Jersey Transit's operating revenue.
B) demand for transit service will go up as fares increase.
C) demand is price elastic.
D) a 10 percent fare hike will produce a 20 percent reduction in ridership.
E) the price elasticity coefficient is 5.

Question

Quizplus · Accepted Answer

The statement implies that increasing fares will still result in increased operating revenue despite a slight loss in ridership, indicating that the demand is not highly sensitive to price changes (i.e., it's relatively inelastic). This is because the loss in ridership (0.2% for every 1% increase in fare) is proportionally smaller than the increase in fare, suggesting that the total revenue will increase with fare hikes.

The Executive Director of New Jersey Transit Was Quoted as Saying,"We